Dynamic Effect of Foreign Direct Investment on Export Growth in Ghana: Does Financial Development Matter?

This study explores the influence of foreign direct investment (FDI) on export growth in Ghana. We use the Zivot and Andrews unit root test on Ghanaian time-series data from 1990 to 2021 to examine the order of integration. In addition, we utilise the Johansen and Gregory and Hansen cointegration approaches to confirm the existence of a long-period bond among the time series. The results show that FDI negatively affects Ghanaian exports, while financial development positively affects Ghanaian exports. In addition, our results show that industrialisation improves exports, while exchange rate and labour cost have negative impacts on exports. Generally, a certain level of financial stability is needed for financial development and higher exports. However, our results show a U-shaped correlation between increased FDI inflows and exports, suggesting a threshold impact. Causality test results show that exports cause industrialisation and FDI in a single flow, while labour specifically causes exports. This study recommends the realignment of access to credit as well as the efficient allotment of export budgets.